Patent Litigation Insurance: Do You Need It?

I recently came across the concept of Patent Litigation Insurance or Intellectual Property Liability Insurance while doing my research online about patents. I must confess that I am attracted to the idea of getting one.

You may or may not know it, but chasing someone in court for infringing on your patent is a very expensive and exhaustive process. Patent litigation cases drag on for years and costs up to millions in dollars in legal costs.

I must admit that the sheer cost of patent litigation is what first drove me to reconsider starting a business which involves products that require a patent. Being a small business owner, I don’t have the financial capability to go after counterfeiters who would wantonly counterfeit my products.

That is why if you are in the same boat as me and are considering selling products that require a patent, you should seriously consider whether or not you need a patent litigation insurance or not.

The Details:

1. What is Patent Litigation Insurance?

As the name of this insurance product applies, this is an insurance product that supposedly protects you when you get sued for patent infringement or when you want to go after someone who allegedly counterfeits your product.

Depending on the type of coverage you have, you can get full financial coverage of all your legal costs or just a part of it. This is a typical setup for most insurance products that give you a tiered protection depending on the amount of coverage you pay for their insurance.

One thing that you need to ask your insurer though is how many times their coverage insures you from patent litigation. This is because it is entirely normal for more than one counterfeiter to be sued or complainant to sue you during the life of your insurance coverage.

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2. Types of Patent Litigation Insurance

There are three types of Patent Litigation Insurance:

1. Insurance When You Get Sued:
This type of patent litigation insurance assists you if ever you get sued for patent infringement. Unfortunately, business rivals or patent trolls can sue you for patent infringement as a means to destroy your business or make money off you. This type of insurance helps you in these such cases.

2. Insurance When You Get Infringed:
This assists you in financially going after parties who infringe on your patents. At times, the insurance company even assists in the legal matters surrounding your case, like recommending the legal practitioners who should assist you.

3. Full Coverage:
This is a combination of the two insurance types previously mentioned above. This protects you when you get sued and also assists you in suing parties who infringe on your patents. Of course, this means that you would also need to pay higher insurance costs.

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3. Costing

The insurance company’s assessment of your insurance costs is a complicated issue and is largely decided upon by the insurance company’s actuaries and legal experts, as well as business experts.

But some common factors like the amount of sales of your products, the market size of your products, the amount of profits to be made regarding your products and how competitive is your industry are just some indicators of how much your insurance costs would be.

Do take note that geographical coverage also plays a major part in how your insurance costs would be priced. Your insurance coverage might cover only a single country or many depending on the amount of insurance you pay.

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4. Do You Need Patent Litigation Insurance?

Patent litigation cases can run in the millions in terms of legal costs. If your products or sales don’t exceed a million dollars or more currently or in the foreseeable future, it might be a good idea to opt out of patent litigation insurance as you can use your funds more prudently.

For example, instead of patent litigation insurance, you may opt to use the funds to further grow your business until you break the several millions in sales mark. Then, you can consider patent litigation insurance.

Another instance when you might not readily need yet patent litigation insurance is when you have just filed your patent application. What you can do is to save funds while waiting for your patent to issue. Then, you can get patent litigation insurance to go after counterfeiters.

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5. The Current State of Patent Litigation Cases

It is truly sad news these days when the counterfeiting and piracy industry is now worth hundreds of billions of dollars, dwarfing many legitimate industries ran by law abiding business people.

In fact, patent litigation cases have been steadily growing over the years and shows no signs of slowing down. If you have a good selling product, there is a very high chance that somewhere out there in the world, counterfeits of your products are being sold.

With patent laws seemingly toothless and outdated in the era of global trade which includes the market for counterfeit products and with many shady companies not deterred from being taken to court because of their deep pockets, expect that at one point your products would be counterfeited.

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6. Adding Patent Litigation Insurance Cost to Your Product Pricing

One prudent move that you could do is to integrate the cost of patent litigation insurance in your product costing. This is especially applicable if you manufacture products in high volume like in the millions.

A few cents added to each of your product’s cost could easily amount to a large amount of money which may be used to pay for your patent litigation insurance and other legal and insurance costs.

Treat patent litigation insurance and other legal costs as just part of doing business these days. Insurance might seem like an unneeded expense until you actually need it like in accidents, medical or legal emergencies.

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Final Words

Patent litigation insurance is an insurance product that has existed for years, though not widely popular because not many businesses and individuals seek such insurance. But it has been gaining steam over the years because of the increasing number of patent litigation cases.

The need for this type of insurance cannot be underestimated for businesses and inventors. It protects businesses and inventors from being sued and also helps them to sue other parties who violated their intellectual property rights.

Just like many types of insurance, you don’t really see or realize the need for one until you actually need it. Like it or not, intellectual property rights can be used as a weapon by yourself or other parties.

But, if you don’t have the financial means to enforce your intellectual property rights, then it is useless and is just a piece of document hanging in your office or filed in your office desk. You need money to enforce your intellectual property rights and this is where patent litigation insurance comes into play.

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